Friday, June 20, 2014

Budget 2015. How does RI get it so backwards?

    A big part of the  answer to "How does Rhode Island persistently get it so wrong ?" is the willful  acceptance of an  extraordinary level of group think whether its from RIPEC or organizations like  The Providence Chamber of Commerce . This was on full display during recent hearings at the statehouse as one right after another a group or economist read the talking points of  Nicholas Mattiello and Lincoln Chafee.  This rote  ,"off the shelf "analysis has proven  deadly in the past to Financial growth in Rhode Island  and those two organizations are indicative of lazy analysis as they have an unparalleled knack for being wrong for decades . On the trading floors we call this thinking. "back-asswards" .

   The Connecticut study below entitled "the economics of ethics and the cost of political corruption" is timely and relevant.We all know Rhode Island is corrupt. The bond markets know it also. This study's  conclusion was that  "Among the negative factors in job growth, the effect of corruption was
30% greater than that of taxes, implying that honest government may be even more
important than a favorable tax environment in sustaining strong economic performance"

             Lets examine the 2015 budget and what Governor Chafee  , House , Senate  and local Chamber of Commerce are so proud of as this assembly closes its 2014 session.

                 1) Assembly and Governor displayed huge -pride in paying off 38 studios bonds  without producing promised forensic investigation.
                 2) minimum wage .. the analysis shows wage correlation to job growth below...its zip

                 3) Taxes : we have members of our State financial team arguing increasing taxes will help job  growth? was expressed outright in sales tax testimony and reiterated by RIPEC, and the perennially confused Leonard Lardaro

                  4) Everyone in Government argues for more educational dollars to support the same broken system ..the correlation of education to job growth  is shown below as nil

            And the three areas with the most impact on job growth? 

            Reducing corruption - our governor and assembly spent significant time and effort embedding the latest round of corruption and consequently a cost to state borrowing that may take decades to reduce. The RI  Governor and Assembly's refusal  to investigate 38 studios will cost many times the supposed hit from a threatened ratings downgrade and last much longer. This is clearly harmful for job growth prospects.Political corruption undercuts free markets and hampers efficiency.

            2 Growth in productivity comes about by smaller government, less bureaucracy, tax friendly policy  and more certainty.This seems obvious to many as ultimately this increases and expands the whole job pie. Yet as an example ob obliviousness we saw Representative Theresa Tanzi suggest in open debate  that income should be redistributed through estate taxation to as much as 30% of the estate. The only thing we are certain about after this years budget and debate  is the unwillingness of this body to address corruption and the underlying progressive redistribution push.

            3 Population growth - our policies and single party rule are driving people from Rhode Island .The single biggest factor to job growth is a rising population.           

Factors That Explain Job Growth Across States

Variable Standardized Coefficient Description

Corruption -0.2 One additional conviction per 100 elected officials reduces job growth by 1.1 percentage points.

Taxes -0.15 A $100 increase in per-capita state taxes cuts job growth by 0.5 percentage points.

Education  0.02 An increase in education produces no statistically significant increase in jobs.

Wages -0.05 An increase in wages produces no statistically significant decrease in jobs.

Population  0.79 A one-percentage point increase in population produces a 0.8 percentage point increase in jobs

Per Capita GSP  -0.38 A $1000 increase in per-capita GSP lowers job growth by 1.0 percentage point.

Source: The Connecticut Economy based on data from Schlesinger and Meier,and from the U.S. Bureaus of Labor Statistics, Census, and Economic Analysis.

In Rhode Island "group think", combined with  monopolistic cronyism  and lack of true independent analysis have doomed Rhode Island to a socialist status quo and a thriving environment for insider corruption. Isn't it time we the people revolted against this?

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